Monday, December 28, 2009

Credit Cards and Banking for Canadian Travellers

I've been doing a lot of research on this topic for the last week, thought I would share my findings.

1.  When you pay with a credit card overseas there is a hidden fee called the foreign transaction fee or currency exchange fee.  This is charged on top of what ever exchange rate your card issuing bank gives you.  The fee used to be completely hidden but now credit card providers have to be more transparent with it.

The fees vary depending on what card and bank you deal with.  Visa/MC takes 1 %, and your bank may tack on another 2%.  Amex is roughly the same from what I've read.  So.... each time you charge something, you are paying an extra 2-3 % on average.  When you travel for a long time these costs can add up, so don't forget to add it to your calculations/bookkeeping.  

In the US Capital One is the only credit card I know of that has 0% currency exchange fee.  In Canada they charge 2.5%.  All other card providers charge something similar.  My RBC Visa charges 2.5% btw.  

2.  Sometimes when I travel the merchant will take the total I owe them, convert it into USD, and then charge my card.  What happens is the merchant will tack on an extra 1% to the total, then you get hit with the USD exchange rate, then you get hit with the currency exchange fee.  I've read that the merchants aren't actually allowed to this as per their agreement with Visa/MC.  I didn't look into it deeper though, I got tired of doing the research to be honest and tried to cut right to a potential solution.  

So then I tried looking for a Canadian bank who was willing to issue a USD credit card with no annual fees.  The annual fees for that type of card range between $40-60 a year.  -No luck and RBC Visa is not willing to waive the annual fee even though I've had my Platinum Avion card with them for a while.  

3.  Debit card transactions.  I hate travellers cheques.  To me there's something about cheques that's just not very sexy :)  And I'd imagine it's too much hassle these days to go around cashing travellers cheques, most merchants prefer cash.  So for me I usually withdraw money from ATM's, however, that too carries a significant cost depending on your habits.  For my bank, TD Canada Trust, there is a $5 fee each time I withdraw money internationally.  Depending on how much money I need each trip to the ATM can cost a lot.  For example in Indonesia the inflation is soooo bad that cash withdrawals go up to the millions of Rupiahs.  The volume of paper is so thick that the bank machines don't have big enough spouts to pour out your money.  Some machines only spit in denominations of 50,000 and others in 100,000.  So that's a maximum withdrawal of 1,250,000 Rp or 2,500,000 Rp at a time.  I end up having to make multiple withdrawals if I need a large sum of money, at $5 per withdrawal.  Over a few months of travel that will add up. 

BTW if you live sensibly or like a local, 2.5million in Rupiah should last you a few weeks to possibly a month in variable expenses.  But if you like to party like you would in Miami, 2.5mill will evaporate in a few short hours.

If anything changes I'll update this post.  If anyone has any tips please leave a comment.  For now, if you're Canadian, you're SOL.

Cheers!  From frosty Vancouver.

[update: Jan 26th] Turns out my bank has a chequing account which waives the $5 ATM fees for international withdrawals.  The monthly cost of this account is $25, which is worth it considering I'll need to make at least 6 trips to an ATM a month.  A few weeks from my next trip I will transfer my account over and also ask them to increase my daily withdrawal limits.  I plan on renting a house/villa for a few months in Asia.  Some places will ask for a damage deposit and/or a lump sum for the 3-6 month rental agreement.  I'll need quick, easy, safe access to my money in order to make this happen.  Unlike some people I'm not a big fan of carrying thousands of dollars on me... it's way too easy to spend it on partying.